Why are some national contests invalid in certain states and other countries?

In a magazine advertisement for a company contest or giveaway, the description of the prize is typically followed by a huge mass of fine print. The fine print details all the contest rules, restrictions, regulations, etc. If the contest is advertised on radio or television, we hear the announcer switching gears suddenly at the end of the spot, running quickly through the eligibility requirements and rules.

Companies do this because when they open a contest to the public, they create all sorts of possible legal troubles for themselves. They have to be perfectly clear about their own responsibility in the contest so they can avoid lawsuits from disgruntled contest losers and dissatisfied contest winners. This gets a bit tricky because, in addition to covering themselves under the general national law, companies running contests also have to cover themselves under the regional laws everywhere they run the contest.

In the United States, every state establishes their own set of rules for contests. Most states have the same basic rules, so most national contests are valid. Rhode Island is unique because the state law actually requires the company to file a legal statement before it can run a contest in that state. The statute, Section 11-50-1 of Rhode Island General Laws, reads:

"Any person, firm, or corporation proposing to engage in any game, contest, or other promotion or advertising scheme or plan in which a retail establishment offers the opportunity to receive gifts, prizes, or gratuities, as determined by chance, in order to promote its retail business, where the total announced value of the prizes offered to the general public is in excess of five hundred dollars ($500), must file a statement with the secretary of state."

The statute then details exactly what information must be included in the filed statement. In addition, the law requires the company pay a $150 filing fee. If a company runs a contest in Rhode Island, and fails to file a statement correctly, the company is actually guilty of a criminal misdemeanor!

For companies that want to run national contests, the filing fee alone means it's not really worthwhile to run the contest in Rhode Island, which has a fairly small population. When you add to that the hassle of researching Rhode Island law in order to file the statement correctly, very few national companies are going to bother. The term "retail establishment" is fairly vague, so it's not really clear if the law would apply to a non-retail Web site. It probably does, however, and for most sites, it's not worth the time to try to contact the state of Rhode Island secretary of state to find out.

The other 49 U.S. states don't require special filing procedures, but they may have particular rules about what sort of contests are legal. This is where the "void where prohibited" clause comes in. The statement gives the company blanket protection against running an illegal contest, without having to research the law in each particular state, and tailor the contest accordingly.

Contest law varies even more between different countries. If you were to open up a contest to people all over the world, you would have to research the law in every single country on earth, to avoid getting yourself in legal trouble. For a typical promotional contest, this is just too much work. The legal fees for the required research would be much more than the payoff of the promotion. Additionally, there are some problematic legal questions inherent in any international contest. For example, if something were to go wrong, -- say, the prize was lost in shipping -- what court would the contest winner go to? It would be a very tough legal question just figuring out who had jurisdiction.

What it comes down to is that it's just too much work for a company to find out how to cover themselves, legally, in multiple countries and in all states. After all, the typical rules and regulations of a contest running only in the United States take up 20 or so paragraphs. Just think how small a company would have to make the print to cover itself internationally!